INS311

2023
WEEK 5: Lecture 2
Vesting of the assets of the insolvent

Professor Michel Koekemoer

 TOPICS FOR THIS LECTURE
• Vesting of the estate in the trustee.
oProperty falling into the estate.
oProperty not falling into the estate.
 OUTCOMES FOR THIS
LECTURE
➢Distinguish between the assets which fall inside and outside the
insolvent estate.
➢Determine when section 63 of the Long-term Insurance Act 52 of 1998
will apply and be able to apply this provision within the context of
insolvency law.
➢Discuss when the insolvent can validly dispose of goods forming part
of the insolvent estate.
 VESTING OF ESTATE IN
TRUSTEE
➢The trustee must: collect the assets, realise the assets and
distribute the proceeds to the creditors.
➢This can only happen if the debtor’s estate vests in the trustee.
–Practically it vests in the Master and then in the trustee when
appointed (section 20(1)(a).
➢There is a list of assets which are excluded. So, these assets
would not vest in the trustee.
 PROPERTY WHICH FALLS
INTO ESTATE
➢Property includes movable and immovable property.

Section 20(2)(a) Property at the date of sequestration

All the debtor’s property at the date of sequestration, including
property or its proceeds which are in the hands of a sheriff under
writ of attachment.
➢Interesting exclusion: immovable property outside the Republic
(does this now answer your question about jurisdiction?)
➢What if the immovable property is in the process of being
transferred?
 PROPERTY WHICH FALLS
INTO ESTATE

Property acquired during sequestration

Section 20(2)(b)
All property that the insolvent may acquire, or which may accrue
to him, durinq the sequestration vest in his estate.
Does this include an inheritance?
What if the couple is married in community of property and the will
says that the property should be excluded if the other spouse is
insolvent?
What about insurance benefited paid out during insolvency?
 PROPERTY WHICH FALLS
INTO ESTATE
Property acquired during sequestration: case law
Does this include an inheritance? Yes.
Vorster NO v Steyn 1981 (2) SA 831 (O)
Thi s Photo by Unknown Author i s licensed under CC BY

➢ Even if there was a provision to the contrary included in the will.

➢ The provision read: ‘I hereby bequeath my entire estate-movable and immovable-to my son,
Peter William Vorster, the proviso being that, if at the time of my death [he] happens to be an
insolvent, proceeds of my estate should go into trust until such time as [he] is rehabilitated.”
– It was almost like a ‘place holder’ and the provision did not indicate on behalf of whom the trust would
administer the property during the period the sequestration (so until rehabilitation).
➢ When Vorster applied for rehabilitation, he also applied that these ‘excluded assets’ now vests
in him.
➢ The court held that this was a nudum praeceptum (nude prohibition) and the inheritance vested
in the insolvent estate in terms of s20(2) and the inheritance remained part of the estate on
rehabilitation.

However, it is possible for the insolvent to reject the bequest, and then this would not fall in his
insolvent estate. It is the same with an insurance benefit.
 PROPERTY WHICH FALLS
INTO ESTATE
Property acquired during sequestration: case law on inheritance
Badenhorst v Bekker 1994 (2) SA 155 (N)
➢Couple married in community of property.
➢There joint estate was sequestrated.
➢The wife’s father died and left certain assets to his daughter as her “free and exclusive property,
free from the debts of, and excluded from any community of property with, her husband, and
free from her husband’s control and marital power”.
➢The question to consider was whether it was legally possible to effect to the provision of the will.
➢The court held that it was not possible for the testator to determine that the bequest would be
excluded if the beneficiary’s estate was sequestrated. The provision in the will had no legal
effect.
➢The Insolvency Act is clear on those assets which are excluded from the insolvent estate and
the bequest did not fall under any of the categories specifically listed.
➢It my appear unfair, but this is a natural consequence of being married in community of
property.
➢What is the solution then if you have to draft such a provision in a will?
 PROPERTY WHICH FALLS
INTO ESTATE
Property acquired during sequestration: case law on inheritance
Du Plessis v Pienaar No and others 2003 (1) SA 671 (SCA)
➢Debts incurred by persons, not their estates. Thus, and spouse in marriage in community of
property liable for debt incurred by either one of them. Creditors can look to estates of both
debtors for recovery of debt.
➢Estate comprising not only spouse's undivided interest in joint estate but also his or her
separate property falling outside of joint estate. {do you agree with this?}
➢The Act did not recognise separate estates of a debtor, or allow for the sequestration of only
part of a debtor's estate: sequestration divested the debtor of the whole of his or her estate.
➢Sequestration of joint estate, both spouses becoming 'insolvent debtors' for purposes of
Insolvency Act, with the consequences that property of both, including separately owned
property available to creditors.
➢Not the spouses, nor a testator, could unilaterally alter these consequences which flow from
having a joint estate. There is no ‘immunising property against the claims of creditors’.
 PROPERTY WHICH FALLS
INTO ESTATE
Property acquired during sequestration: case law
Benefits from an insurance policy and bequest
Wessels NO v De Jager en ’n Ander NNO 2000 (4) SA 924 (SCA)
➢The couple was married out of community of property. {what if they were married in
community of property?}
➢A wife took out a life insurance policy with her husband as the beneficiary. She later passed
away intestate.
➢Husband’s estate was sequestrated.
➢Husband decides to not accept the benefits of the insurance policy and he repudiates the
inheritance from his wife’s deceased estate. {it is an offer made which must be accepted}
➢There is a difference between the competence (or power) to accept the bequest or
nomination and he has no right to such property until he has accepted the benefit.
➢As there is no right to such property, there is nothing which can vest in the trustee of an
insolvent estate.
 PROPERTY FALLING
OUTSIDE THE ESTATE
Remuneration for work done
➢Section 23(9) the insolvent is entitled to all monies received from
work done and property bought with his earnings belong to him.
➢In terms of s23(5) the insolvent will only have to part with some of his
earnings if the Master has expressed the opinion that the (entire)
earnings are not necessary for the subsistence of the insolvent (and
his dependants if he has any).
–This is referred to as the ‘surplus’ and the trustee is entitled to some of the
insolvent's earnings [see Singer NO v Weiss and another 1992(4) SA 362
(T)]
➢The insolvent must provide record of earnings to provide the trustee
on demand.
 PROPERTY FALLING
OUTSIDE THE ESTATE
Wearing apparel and other means of subsistence
In terms of s82(6) clothes, bedding, household furniture (pots and pans) tools etc fall
outside of the insolvent estate.

Pension
➢Section 23(7) allows the insolvent to recover for his own benefit any pension he is
entitled to for services rendered.
➢Also see other statutes excluding pension from an insolvent estate.

Compensation for defamation or personal injury

➢Section 23(8) loss or damage arising from any personal injury or defamation to be
payable to the insolvent and not to vest in the trustee.
Hockley 5.3.5-5.3.7 is self-study.
 PROPERTY FALLING
OUTSIDE THE ESTATE
Insurance policies Thi s Photo by Unknown Author i s licensed under CC
BY-ND

Policies covering liability to third parties

➢Third-party insurance (or indemnity insurance): A person is insured against
liability to third persons.
➢If the liability included in the cover happens, the right to claim against the
insurer would passes to the third party. It does not form part of the insolvent
estate (see section 156).
➢The third party will proceed to directly claim from the insurer.
➢‘Upon insolvency of the insured the third party entitled to recover
directly from insurer without having first to obtain judgment against
the insured for amount claimed or agreement in relation thereto’
See Gypsum Industries Ltd v Standard General Ins Co Ltd 1991 (1)
SA 718 (W)
 PROPERTY FALLING
OUTSIDE THE ESTATE
Insurance policies
Life policies
The discussion in Hockley, 9th edition relates to section 63 of the Long -Term
Insurance Act 52 of 1998 before the amended. Please ignore and study what is
written in the study booklet.The difference relates to a previous monetary cap
that only R50,000 of the entire benefit would be excluded from the insolvent
estate.
Certain benefits are excluded from the insolvent estate:
➢Policy benefits provided (or to be provided) to insolvent under an
assistance, life, disability or health policies, which was in force for at
least 3 years, where the insolvent or spouse is the life insured; and
➢Any asset acquired using the policy benefit within 5 years from when it
was provided.
 PROPERTY FALLING
OUTSIDE THE ESTATE
Insurance policies
Life policies (section 63(1) continued)
➢The exclusion will not apply if the policy benefits are payable to a third party,
not the insolvent.
➢The policy benefits may not during his or her lifetime be attached or subjected
to execution under a judgment of a court or form part of his or her insolvent
estate (s63(1)(i))
➢Also, these benefits may not be used on the insolvent’s death to pay his debts
if he is survived by a spouse, child, stepchild or parent. (s63(1)(ii))
See Mabe Z “Life and other insurance policy benefi ts and the property of
an insolvent person” (2015) 78(2) THRHR 237 for more information on this
amended section.
 PROPERTY FALLING
OUTSIDE THE ESTATE
Share in accrual
➢Marriage out of community of property, but with accrual.
–You keep what was yours before the marriage; and
–What you earned during the marriage belongs to both parties.
➢The right of a spouse to share in the accrual (growth) of the
estate of the other spouse.
➢Section 3(2) of the Matrimonial Property Act 88 of 1984 states
that this right is excluded from the insolvent estate.
➢This exclusion will apply while the parties are married to each
other.
 PROPERTY FALLING
OUTSIDE THE ESTATE
Trust property/funds
➢The assets of the trustee of a trust does not form part of the trustee’s
insolvent estate when his estate is sequestrated. Remember you will
be removed as trustee when your estate is sequestrated.
➢An attorney becomes insolvent: trust money does not form part of his
insolvent estate.
➢Property practitioner, for example an estate agent: trust money does
not form part of his insolvent estate.
➢The provisions relate to holding funds in a representative capacity.

Study the remainder of Hockley 5.3.10

 PROPERTY FALLING
OUTSIDE THE ESTATE
Right of labour tenant to land or right in land
➢This right does not form part of the insolvent estate.

Friendly society moneys and assets

➢Money due as benefits ito the rules of a friendly society to a retiring member is
excluded, but he must have been a member for at least 3 years.

Property acquired with money from above sources

➢Any bought with the money received from the excluded categories will
also not vest in the trustee.
 DISPOSAL OF ESTATE
PROPERTY BY INSOLVENT
The insolvent may not dispose of property forming part of the insolvent
estate.
Immovable property: Thi s Photo by Unknown Author i s licensed
under CC BY

➢After sequestration there is a caveat entered on the Deeds

Registry system.
➢This caveat remains valid for 10 years after sequestration
(coincide with term for rehabilitation).
➢The transfer of title or registration of a mortgage will be valid if
the caveat expired, but the estate is still sequestrated.
➢What then if this happens if the caveat is still in place?
 ACQUISITION OF NEW ESTATE
DURING INSOLVENCY
➢Can you now see how the insolvent can start to build up an estate
separate from the insolvent estate?
➢This separate estate can also be sequestrated separately from the first
insolvent estate.
 Preparation for next week

We are combining two weeks so that you have the week free when you
write your test:

Please read:
➢Hockley Chapters 6 and 7.
➢Harksen v Lane 1998 (1) SA 300 (CC)
➢Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC)

You may have tutorials next week, so you can be free the week of your
test. This will be confirmed during the lecture.
Thank You.

Questions?